News » News Feature

About that tax donation ...

comment
A lot of good charities advertise that they'll accept your donated vehicle and you'll be eligible for a tax deduction based on the car's value. The rules on that are going to change as of Jan. 1, however, and with good reason.

According to a study by the Government Accounting Office (GAO) released a year ago, 733,000 taxpayers claimed deductions in the 2000 tax year for cars "worth" $500 or more, costing Uncle Sam $654 million in "tax avoidance." Some 4,300 recipient charities were involved. But the GAO found that the charities typically never see the cars. They just have them sent to wholesale auction lots, where they're sold to used-car dealers; in most of the cases the GAO studied, the charities themselves received just 5-15 percent of the car's value as claimed by the taxpayer.

Based on that, Congress told the IRS to rewrite the rules on car donations next year. In the so-called American Jobs Creation Act of 2004--which in most respects was big tax giveaway to business--Congress said deductions should be based on what the charity itself gets, and no more.

Thus, starting with your 2005 returns, it won't be what you say the car is worth. It'll be what the charity receives for it, net.

There's an exception, however, for groups that actually take possession of the vehicle and use it for "significant tax-approved charitable work" of their own, according to OMB Watch, a nonprofit government accountability group in Washington.

That should cover Wheels4Hope, though Chris Simes admits he's nervous about what will come out of the IRS rule-making process. The cars Wheels4Hope takes for its charitable program are essentially given away, since the flat fee of $500 doesn't even cover what the group spends on them after they're donated. That is, of course, its "tax-approved charitable work." Other cars are accepted and sold directly to the public, with the sales price establishing their actual "worth."

Wheels4Hope will be open New Year's Eve to accept cars people would like to contribute as last-minute tax deductions. Call 255-1325 for more information.

Add a comment